UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 000-09439

INTERNATIONAL BANCSHARES CORPORATION

(Exact name of registrant as specified in its charter)


Texas		74-2157138
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)

1200 San Bernardo Avenue, Laredo, Texas 78042-1359

(Address of principal executive offices)

(Zip Code)

(956) 722-7611

(Registrant’s telephone number, including area code)

None

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class:	Trading Symbol	Name of each exchange on which registered:
Common Stock, $1.00 par value	IBOC	NASDAQ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻

Indicate by check mark if the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company, in Rule 12b-2 of the Exchange Act.


Large accelerated filer ⌧		Accelerated filer ◻

Non-accelerated filer ◻		Smaller reporting company ☐
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ⌧

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date


Class		Shares Issued and Outstanding
Common Stock, $1.00 par value		65,658,153 shares outstanding at August 5, 2019

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

Consolidated Statements of Condition (Unaudited)

(Dollars in Thousands)


	June 30,		December 31,
	2019		2018
Assets
Cash and cash equivalents	$	321,119	$	316,797
Investment securities:
Held to maturity debt securities (Market value of $2,400 on June 30, 2019 and $1,200 on December 31, 2018)		2,400		1,200
Available for sale debt securities (Amortized cost of $3,473,480 on June 30, 2019 and $3,481,165 on December 31, 2018)		3,467,913		3,411,350
Equity securities with readily determinable fair values		6,127		5,937
Total investment securities		3,476,440		3,418,487
Loans		6,842,701		6,561,289
Less allowance for probable loan losses		(58,203)		(61,384)
Net loans		6,784,498		6,499,905
Bank premises and equipment, net		505,696		506,899
Accrued interest receivable		37,956		36,803
Other investments		299,913		337,507
Cash surrender value of life insurance policies		286,056		282,646
Goodwill		282,532		282,532
Other assets		232,806		190,376
Total assets	$	12,227,016	$	11,871,952

INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

Consolidated Statements of Condition, continued (Unaudited)

(Dollars in Thousands)


	June 30,		December 31,
	2019		2018
Liabilities and Shareholders’ Equity
Liabilities:
Deposits:
Demand—non-interest bearing	$	3,554,907	$	3,454,840
Savings and interest bearing demand		3,304,326		3,268,237
Time		1,969,425		1,973,468
Total deposits		8,828,658		8,696,545
Securities sold under repurchase agreements		241,188		229,989
Other borrowed funds		808,376		705,665
Junior subordinated deferrable interest debentures		134,642		160,416
Other liabilities		153,833		139,755
Total liabilities		10,166,697		9,932,370
Shareholders’ equity:
Common shares of $1.00 par value. Authorized 275,000,000 shares; issued 96,151,204 shares on June 30, 2019 and 96,104,029 shares on December 31, 2018		96,151		96,104
Surplus		146,614		145,283
Retained earnings		2,133,239		2,064,134
Accumulated other comprehensive loss		(4,252)		(54,634)
		2,371,752		2,250,887
Less cost of shares in treasury, 30,497,401 shares on June 30, 2019 and 30,494,143 on December 31, 2018		(311,433)		(311,305)
Total shareholders’ equity		2,060,319		1,939,582
Total liabilities and shareholders’ equity	$	12,227,016	$	11,871,952

See accompanying notes to consolidated financial statements.

INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income (Unaudited)

(Dollars in Thousands, except per share data)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
Interest income:
Loans, including fees	$	105,564	$	92,083	$	208,369	$	179,916
Investment securities:
Taxable		19,602		20,694		38,902		41,908
Tax-exempt		1,377		2,087		3,026		4,282
Other interest income		317		202		626		367
Total interest income		126,860		115,066		250,923		226,473

Interest expense:
Savings deposits		4,249		3,291		8,492		5,519
Time deposits		5,044		3,010		9,422		5,679
Securities sold under repurchase agreements		591		348		1,180		1,371
Other borrowings		3,513		4,379		7,007		9,068
Junior subordinated deferrable interest debentures		1,681		1,765		3,631		3,291

Total interest expense		15,078		12,793		29,732		24,928

Net interest income		111,782		102,273		221,191		201,545

Provision for probable loan losses		2,665		(2,730)		10,085		(1,068)

Net interest income after provision for probable loan losses		109,117		105,003		211,106		202,613

Non-interest income:
Service charges on deposit accounts		17,610		17,555		34,870		35,267
Other service charges, commissions and fees
Banking		11,764		11,152		22,640		22,274
Non-banking		2,238		2,028		3,747		3,388
Investment securities transactions, net		(6)		—		(10)		—
Other investments, net		(1,703)		5,841		2,245		10,567
Other income		4,513		5,727		7,053		9,782

Total non-interest income	$	34,416	$	42,303	$	70,545	$	81,278

INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income, continued (Unaudited)

(Dollars in Thousands, except per share data)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
Non-interest expense:
Employee compensation and benefits	$	37,246	$	34,692	$	73,655	$	69,310
Occupancy		6,580		7,163		12,957		13,238
Depreciation of bank premises and equipment		7,032		6,364		14,013		12,637
Professional fees		3,745		3,375		7,337		5,947
Deposit insurance assessments		859		974		1,642		1,974
Net expense, other real estate owned		1,203		2,649		2,198		2,378
Advertising		2,081		1,808		4,163		3,647
Software and software maintenance		5,003		4,390		9,500		8,462
Other		15,864		19,186		27,099		31,917

Total non-interest expense		79,613		80,601		152,564		149,510

Income before income taxes		63,920		66,705		129,087		134,381

Provision for income taxes		13,900		13,818		27,161		28,074

Net income	$	50,020	$	52,887	$	101,926	$	106,307

Basic earnings per common share:

Weighted average number of shares outstanding		65,648,090		66,114,497		65,633,117		66,103,499
Net income	$	0.76	$	.80	$	1.55	$	1.61

Fully diluted earnings per common share:

Weighted average number of shares outstanding		65,867,234		66,932,113		65,849,281		66,898,065
Net income	$	0.76	$	.79	$	1.55	$	1.59

See accompanying notes to consolidated financial statements

INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Unaudited)

(Dollars in Thousands)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018

Net income	$	50,020	$	52,887	$	101,926	$	106,307
Other comprehensive income, net of tax:

Net unrealized holding gains (losses) on securities available for sale arising during period (net of tax effects of $6,685, $(2,974), $13,391, and $(13,594))		25,148		(11,187)		50,374		(51,140)
Reclassification adjustment for losses on securities available for sale included in net income (net of tax effects of $1, $0, $2 and $0)		5		—		8		—
		25,153		(11,187)		50,382		(51,140)

Comprehensive income	$	75,173	$	41,700	$	152,308	$	55,167

See accompanying notes to consolidated financial statements.

INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

Consolidated Statements of Shareholders’ Equity

Three Months ended June 30, 2019 and 2018

(in Thousands, except per share amounts)


	Number							Other
	of	Common				Retained		Comprehensive		Treasury
	Shares	Stock		Surplus		Earnings		Income (Loss)		Stock		Total
Balance at March 31, 2019	96,137	$	96,137	$	146,113	$	2,083,219	$	(29,405)	$	(311,359)	$	1,984,705
Net Income	—		—		—		50,020		—		—		50,020
Purchase of treasury (1,953 shares)	—		—		—		—		—		(74)		(74)
Exercise of stock options	14		14		262		—		—		—		276
Stock compensation expense recognized in earnings	—		—		239		—		—		—		239
Other comprehensive income, net of tax:
Net change in unrealized gains and losses on available for sale securities, net of reclassification adjustments	—		—		—		—		25,153		—		25,153
Balance at June 30, 2019	96,151	$	96,151	$	146,614	$	2,133,239	$	(4,252)	$	(311,433)	$	2,060,319


	Number							Other
	of	Common				Retained		Comprehensive		Treasury
	Shares	Stock		Surplus		Earnings		Income (Loss)		Stock		Total
Balance at March 31, 2018	96,044	$	96,044	$	172,416	$	1,923,411	$	(68,350)	$	(292,263)	$	1,831,258
Net Income	—		—		—		52,887		—		—		52,887
Purchase of treasury (1,298 shares)	—		—		—		—		—		(57)		(57)
Exercise of stock options	22		22		355		—		—		—		377
Stock compensation expense recognized in earnings	—		—		285		—		—		—		285
Cumulative adjustment for adoption of new accounting standards	—		—		—		6,167		(6,167)		—		—
Other comprehensive income, net of tax:
Net change in unrealized gains and losses on available for sale securities, net of reclassification adjustments	—		—		—		—		(5,020)		—		(5,020)
Balance at June 30, 2018	96,066	$	96,066	$	173,056	$	1,982,465	$	(79,537)	$	(292,320)	$	1,879,730

See accompanying notes to consolidated financial statements.

INTERNATIONAL BANCSHARES CORPORATION AND SUBSIDIARIES

Consolidated Statements of Shareholders’ Equity

Six Months ended June 30, 2019 and 2018

(in Thousands, except per share amounts)


	Number							Other
	of	Common				Retained		Comprehensive		Treasury
	Shares	Stock		Surplus		Earnings		Income (Loss)		Stock		Total
Balance at December 31, 2018	96,104	$	96,104	$	145,283	$	2,064,134	$	(54,634)	$	(311,305)	$	1,939,582
Net Income	—		—		—		101,926		—		—		101,926
Dividends:
Cash ($.50 per share)	—		—		—		(32,821)		—		—		(32,821)
Purchase of treasury (3,258 shares)	—		—		—		—		—		(128)		(128)
Exercise of stock options	47		47		827		—		—		—		874
Stock compensation expense recognized in earnings	—		—		504		—		—		—		504
Other comprehensive income, net of tax:
Net change in unrealized gains and losses on available for sale securities, net of reclassification adjustments	—		—		—		—		50,382		—		50,382
Balance at June 30, 2019	96,151	$	96,151	$	146,614	$	2,133,239	$	(4,252)	$	(311,433)	$	2,060,319


	Number							Other
	of	Common				Retained		Comprehensive		Treasury
	Shares	Stock		Surplus		Earnings		Income (Loss)		Stock		Total
Balance at December 31, 2017	96,019	$	96,019	$	171,816	$	1,891,805	$	(28,397)	$	(292,263)	$	1,838,980
Net Income	—